The 1099-K reporting threshold changes enacted in Massachusetts and Vermont have started to have repercussions for states, online businesses and companies doing tax reporting.

In conflict with IRS requirements, Massachusetts and Vermont changed the threshold for reporting 1099-K transactions from $20,000 and 200 transactions to just $600 with no minimum number of transactions. These transactions include payments from third-party settlement organizations (TPSOs), such as online auction sites, to non-employee service providers, such as people who sell via online auction sites.

Surprise to Businesses but Windfall for States

The change has surprised many online sellers, whose payments received were well below the federal threshold and who have never before received 1099-K forms. Massachusetts and Vermont are expecting a tax windfall from the threshold adjustment, with Massachusetts projecting additional revenue of $20 million and Vermont expecting an additional $1.5 million.

The two New England states might be on the forefront of a new trend, as other states, potentially including large population centers New York and California, are exploring similar options. For TPSOs, widespread threshold changes are likely to lead to a massive increase in the number of 1099-K forms filed every year.

A Sign of Things to Come?

New state laws could also be a precursor to a change in IRS policy as the federal agency explores ways to derive revenue from the burgeoning online “sharing” economy. The 1099-K has become a flashpoint for lawmakers as they seek to match the growth in the sharing economy with corresponding rise in tax revenues.

The arrival of 1099-K forms in online businesses’ mailboxes in New England is, in any case, very likely to be just the first of many surprises that could lead tax reporting in the sharing economy to become considerably more chaotic and difficult to manage.

The Sovos Solution

Sovos enables organizations to centralize and automate their tax-reporting processes. As the largest 10-series filer in the United States, Sovos serves nearly half of the Fortune 500 across 52 different industries for 1099 reporting.

As sharing-economy companies deal with rapid and sweeping changes to compliance rules, Sovos provides cloud-based, hybrid and on-premises solutions that enable them to maximize efficiency and avert risk at a time when the booming sharing economy and government desire to claim a piece of it are about to collide.